Widely discussed arbitral award remains in force | Practical Law

Widely discussed arbitral award remains in force | Practical Law

Liina Linsi (Partner) and Holger Tilk (Associate), Lawin

Widely discussed arbitral award remains in force

Practical Law Legal Update 1-504-0793 (Approx. 2 pages)

Widely discussed arbitral award remains in force

Published on 01 Dec 2010 • Estonia
Liina Linsi (Partner) and Holger Tilk (Associate), Lawin
On 23 November 2010, the District Court of Tallinn upheld an arbitration award rendered by the Arbitration Institute of the Stockholm Chamber of Commerce (SCC).
On 20 July 2009, SCC rendered an award in favour of Alta Foods in its dispute with Luterma. Alta Foods claimed that Luterma was obliged to return a prepayment of €6m made by Alta Foods to Luterma in 2007. The prepayment was made to confirm Alta Foods' interest in purchasing the shares of the Kalev Chocolate Factory. Luterma refused to return the prepayment once Alta Foods terminated the agreement by referring to alleged market disruption. In autumn 2009, Luterma challenged the arbitral award in the District Court of Tallinn on the ground of violations of the procedural rules.
Luterma claimed that:
  • One of the members of the arbitral tribunal had not been impartial as he owned 12,650 bonds of Alta Foods. Furthermore, as one of the members of the tribunal had issued a dissenting opinion, the removal of the partial arbitrator would have resulted in an award dismissing the claim of Alta Foods.
  • The occurrence of the alleged market disruption in July 2008 was determined on the basis of partial evidence, as the tribunal reached its conclusions based on a document prepared by the financier of Alta Foods. Luterma alleged that the arbitral tribunal had confirmed to it that that document would not be used as evidence. For that reason, Luterma had not provided a competitive market analysis. However, the tribunal had based its final findings on the document prepared by the financier of Alta Foods.
  • The arbitration proceedings had established the breach of the payment obligation on behalf of Alta Foods but the tribunal had refused to discuss the counterclaim of Luterma.
On 23 November 2010, the District Court of Tallinn dismissed the challenge to the arbitral award. The court found that Luterma's interests had been sufficiently protected in the arbitration proceedings and confirmed that the proceedings were adversarial and fair. As the judgment of the District Court cannot be appealed, Luterma has been obliged to return the prepayment together with interest currently in aggregate amount of €7.2m.
The unfavourable arbitral award might lead to the further solvency problems of Luterma, as once the holding company for several leading Estonian food sector companies, it is already in a tight financial situation, including delay in the redemption of the bonds in value of approximately €12m and tax arrears exceeding €2m.
The decision is not public.